“I was looking at the income-driven repayment plans, and the Pay As You Earn (PAYE) option seems like it will cost me the least amount of money. However, everything I read online says that the income-driven repayment plans cost you more money because although they lower your monthly payment, you ultimately pay more interest in the long run. I was wondering if you could break this down for me? I don’t understand how it will cost me the least amount of money if I never hit the principal balance and pay more interest?”
Here is the student loan “history and signalment” for this 2019 veterinary graduate:
- current federal student loan principal balance: $262,570
- unpaid interest balance: $35,494
- weighted average student loan interest rate: 6.34%
- current/anticipated repayment plan: not sure, maybe income-driven (PAYE)?? but loans not in repayment yet
- current/anticipated minimum monthly payment amount and any amount you’re planning to pay above that: not sure?
- any health profession student loan or loans for disadvantaged students: no
- any private loan balances and interest rates:
- Sallie Mae private student loan: $1,900 with interest rate 10.625%
- Sallie Mae private student loan: $1,886 with interest rate of 9.000%
- any credit card debt balances: $2,600
- current/anticipated taxable income (and spouse’s): $90,000 (no spousal income)
- family size: 1 (just me)
- marital and filing status: single
- spouse loan balance: none
Chief complaint/repayment goals:
Sending this information to the VIN Foundation Student Loan Repayment Simulator results in this projection:
Watching the loan balance grow during repayment is one of the most difficult side-effects of income-driven repayment.
Let’s test to see what that does in this case:
Moral of the story:
Join the conversation:
Tony Bartels, DVM, MBA
Dr. Tony Bartels graduated in 2012 from the Colorado State University combined MBA/DVM program and is an employee of the Veterinary Information Network (VIN) and a VIN Foundation Board member. He and his wife have more than $400,000 in veterinary-school debt that they manage using federal income-driven repayment plans. By necessity (and now obsession), his professional activities include researching and speaking on veterinary-student debt, providing guidance to colleagues on loan-repayment strategies and contributing to VIN Foundation initiatives.